How did the SPR become so popular on Capitol Hill? The illusion of a piggy bank

About 700 million barrels of crude oil stored in four sites along the US Gulf coast seems to have recently inspired the imagination of a cash-strapped Congress.

With US crude production nearing record highs and prices falling below $50/b, federal lawmakers are pushing to sell millions of barrels from the US Strategic Petroleum Reserve to fund bills with little, or nothing, to do with energy.

First Representative Fred Upton, a Michigan Republican and chairman of the House Energy and Natural Resources Committee, included a plan to sell 64 million barrels from the SPR over eight years to fund his health care bill, the 21st Century Cures Act.

Then on July 21, senators included a proposal to sell 101 million barrels of crude from the SPR to at least partially fund a six-year highway bill.

The proposals are expected to raise roughly $5.4 billion and $9 billion, respectively, estimates which assume that crude oil will average $84/b and $89/b, respectively, and ignore the costs of purchasing the crude in the first place.

At the same time, the proposed sales face opposition from the Obama administration and congressional Republicans.

US Energy Secretary Ernest Moniz has said he is against selling the government’s crude reserves for anything other than energy-security purposes and called these planned sales a “slippery slope” to additional sales not in line with the SPR’s purpose.

In a Senate floor speech on Tuesday, Senator Lisa Murkowski, an Alaska Republican and chairman of the Senate Energy and Natural Resources Committee, called an SPR sale to pay for unrelated legislation “shortsighted” and “the wrong approach.”

“If Congress is going to sell any oil from the SPR, we should agree that the proceeds should first be used to pay for upgrading the reserve itself. It needs significant modifications to preserve its long-term viability, and to ensure that it can actually dispense oil in the event of an emergency,” Murkowski said. “It would be a travesty to dramatically reduce the size of the SPR, while continuing to ignore its maintenance and operational needs.”

Murkowski has said the SPR should not be used as an “ATM” for lawmakers, a point stressed by Representative Charles Boustany Jr., a Louisiana Republican, who said SPR sales could impair his state’s most lucrative industry.

“Selling barrels from the [SPR] should be done in a thoughtful and strategic manner when global prices are high, not as another coffer for Congress to raid at its convenience and at the expense of Louisiana’s oil and gas industry,” he said.

According to Kevin Book, managing director of ClearView Energy Partners, the Obama administration could support a sale in exchange for a $2 billion appropriation to “modernize” the SPR, a priority outlined by the DOE. (Book also talked to Capitol Crude about the SPR in June; listen to the episode here.)

Since the first barrels of oil were delivered to the SPR in 1977, its size has always been based on an international agreement to stockpile the equivalent of 90 days of crude imports.

As of July 17, the SPR held 695.1 million barrels, including 266.1 million barrels of sweet crude and 429 barrels of sour crude, according to the DOE. Book said this means the SPR could hold between 250 million and 330 million in surplus, but said he would be surprised if more than 50% of that surplus would be sold, due to resistance from the White House, Murkowski and others.

A sweeping energy bill due to be unveiled this week by Senators Murkowski and Maria Cantwell, a Washington Democrat and the committee’s ranking member, is expected to include limits on SPR sales, keeping them from funding anything but the stockpile’s maintenance and national security efforts.

We’ll have to wait and see if this ends the recent popularity of the SPR as a funding mechanism.

AUTHOR BIO

Brian Scheid,
Senior editor, oil news

Brian Scheid has worked for Platts for six years and has covered multiple beats, including futures and swaps trading, Dodd-Frank financial reform efforts, Congress, the White House and multiple federal agencies, including the Department of Interior, Department of Energy, the Commodity Futures Trading Commission, and the Federal Energy Regulatory Commission. He currently covers US crude oil policy and is co-host of Platts Capitol Crude, a weekly podcast. Previously, he worked for daily newspapers in Connecticut, New Jersey and Pennsylvania. Mr. Scheid is a graduate of Boston College.

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Comments

notfubar at July 27, 2015 12:15

Trust the government types to get it backward. You’re supposed to Buy Low, Sell High.